Crunch hits profits at Lloyds TSB

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The banking giant Lloyds TSB today said credit crunch losses and woes in its insurance business wiped 70 per cent off first half pre-tax profits.

The group reported interim profits of £599 million against £1.99 billion in the first half of last year, with a further £585 million hit from the credit turmoil and investment writedowns in its insurance arm.

But Lloyds said its underlying performance reflected good "momentum", with adjusted profits up 11 per cent to £2.16 billion.

Today's "market dislocation" loss brings the group's total credit crunch impact to £972 million, although this is a fraction of the writedowns seen by many of its rivals.

The group said performance was also knocked by a significant drop in the value of investments at its Scottish Widows business, as the volatility in stock markets took its toll.

However, Lloyds signalled that it was not yet planning to follow in the footsteps of top five banking counterparts Barclays, HBOS and Royal Bank of Scotland with a multi-billion pound fundraising move.

The group's chief executive Eric Daniels said the bank's capital position was "very robust" and should help the group weather the market and economic turbulence.

Lloyds posted a 15 per cent rise in underlying profits at its retail banking arm, to £911 million.

The group grew customer deposits by 10 per cent over the past year, but is continuing to see a cut its mortgage book amid the wider lending market slowdown.

It said net new UK mortgage lending was expected to total around £60 billion in 2008, down from £108 billion last year.

Lloyds said bad debts at its UK retail operation were "slightly higher" at £655 million, with mortgage accounts three months or more in arrears up 3 per cent over the last 12 months.

The group said falls in house prices so far had led to a £36 million impairment charge.

It expects house prices to fall a further 10 per cent to 15 per cent this year and 5 per cent in 2009, which could lead to further bad debts.

Lloyds said: "The first half of 2008 has been a challenging period for all banks, however Lloyds TSB's high quality, more conservative business model remains well positioned to withstand the difficulties of global financial markets turbulence and the marked slowdown in the economic environment."